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In the first quarter of 2024, Massachusetts real gross state product (GDP) increased at an annual rate of 1.8 percent, according to MassBenchmarks, while U.S. GDP increased at an annual rate of 1.6 percent, according to the U.S. Bureau of Economic Analysis (BEA). According to the BEA, in the fourth quarter of last year, Massachusetts GDP grew at an annual rate of 3.0 percent while U.S. GDP grew at a 3.4 percent rate.

The annual benchmark revisions to payroll employment indicate a much slower pace of job growth in the Commonwealth as compared to the nation during 2023. For the period December 2022 to December 2023, the Bureau of Labor Statistics (BLS) revised job growth in Massachusetts down from 1.9 percent to 0.7 percent. This compares to 2.0 percent national job growth during the same period.

Consistent with those revisions, the Bureau of Economic Analysis’ (BEA) estimate of growth in economic output in 2023 entails notably slower GDP growth for Massachusetts than for the U.S. From the fourth quarter of 2022 to the fourth quarter of 2023, the BEA reports that Massachusetts GDP grew 1.9 percent while U.S. GDP grew 3.1 percent. Although the state and the nation grew at about the same pace in the first quarter of 2024, the growth figures for that quarter reflect a slowdown for the U.S. and a continuation of relatively moderate growth in Massachusetts.

Nevertheless, the indicators for the first quarter show that the state’s economy seems fairly healthy on balance. In that quarter payroll employment in Massachusetts grew 2.2 percent on an annualized basis, just above the national growth rate of 2.0 percent, and well up from the state’s (annualized) job growth pace of 0.7 percent in the fourth quarter of 2023. Relative to the first quarter of 2023, the number of jobs in the state was just 0.6 percent higher one year later. For the U.S., annualized job growth in the fourth quarter was 1.6 percent, and the number of jobs increased 1.8 percent on net from the first quarter of 2023 through the first quarter of 2024.

State tax revenues are consistent with robust income growth and spending. Based on seasonally adjusted personal withholding taxes, wage and salary income grew at an annual rate of 12.3 percent in the first quarter of 2024 and ended the quarter 10.1 percent higher than a year earlier. Month-to-month and even quarter-to-quarter in recent years, withholding tax revenues have been volatile.

“The strength in the first quarter in part reflects timing; withholding taxes in both the fourth quarter of 2023 and the first quarter of 2023 were both relatively weak,” noted Alan Clayton-Matthews, Senior Contributing Editor and Professor Emeritus of Economics and Public Policy at Northeastern University, who compiles and analyzes the Current and Leading Indexes for MassBenchmarks. “Those low denominators mean that the pace of income growth, while strong, should be interpreted cautiously,” Clayton-Matthews added.   

The level of withholding tax revenues in the first quarter of this year is consistent with continuing state income growth. The BEA estimates that Massachusetts wage and salary income grew 3.6 percent in the fourth quarter of 2023 and offers a clearer view of recent trends in state income growth.

U.S. wage and salary income also continued to grow robustly in the first quarter, at a 6.4 percent annualized rate. In the fourth quarter of last year, this income grew 4.5 percent, and growth from the first quarter of last year to the first quarter of this year was 5.8 percent.

Spending on items subject to Massachusetts regular and motor vehicle sales taxes grew at a robust 8.6 percent annual rate in the first quarter, after growing 12.7 percent in the fourth quarter of last year. Relative to the first quarter of last year, this spending grew a mere 0.1 percent. This spending largely reflects spending on durable goods.

The labor market continues to look strong, with low unemployment rates and low initial unemployment claims. The headline (U-3) unemployment rate in Massachusetts in March was 2.9 percent, as compared to 3.8 percent nationally. The lower rate for Massachusetts largely reflects demographics. Educational attainment is higher in Massachusetts relative to the U.S., and unemployment rates tend to be lower in more highly educated states.

One indicator suggests some potential softening in the labor market. The U-6 unemployment rate in Massachusetts ticked up to 8.0 percent in March from 6.8 percent in December and 6.2 percent in March of last year. This measure counts more people as unemployed than the U-3 measure by including those who only have part-time work but want full-time work, and those who have given up looking for work but want to work. In Massachusetts, the rise reflects an increase in this latter group. For the U.S., the U-6 rate in March was 7.3 percent, up from 6.7 percent in March 2023.

Inflation remains stubbornly high in the Boston metro area. According to the BLS’ headline consumer price index (CPI-U), prices rose at a 4.3 percent rate in the first quarter of this year relative to the fourth quarter of last year, with core prices – which exclude food and energy – up 6.4 percent in the first quarter. This represents an acceleration in inflation from the fourth quarter. From the first quarter of last year, prices were up 2.7 percent for all items, and up 3.7 percent for core items. The U.S. shows a similar pattern in the acceleration of inflation, though in the first quarter national inflation was lower than in Boston: 3.8 percent for all items, and 4.2 percent for core items.

The outlook calls for steady, but slow growth in the state in the next two quarters. The Massachusetts leading index is predicting annualized growth of 3.1 percent in the second quarter and 0.5 percent in the third quarter of 2024. Economists surveyed by the Wall Street Journal in early April have an average expectation of U.S. growth in the second quarter of 1.6 percent and in the third quarter of 1.4 percent.

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